Utica’s loans to businesses highlight risk

Saturday

The city’s history of questionable economic development success is perhaps most visible in loans it has given out that have produced little in return.

The city’s history of questionable economic development success is perhaps most visible in loans it has given out that have produced little in return.

While that practice includes high-profile, multimillion lending to the likes of Hotel Utica and Loretto Utica Center, it also includes dozens of smaller-scale projects scattered throughout the city.

An O-D review found that 25 of 34 active small business loans are at least one payment behind schedule.

Those range from the $5,000 given to El Coqui Music World in 2004, which has missed 52 payments and is subject to a default judgment by the city, to $100,000 loans given recently to a pair of developers in the Boehlert Center at Union Station neighborhood, both of whom are past due by one payment.

The city loans money through its federally funded Urban and Economic Development department. Loans do not directly affect the portion of the city’s budget that deals with property tax.

But they are the city’s main resource for supporting small businesses, and when past loan holders don’t pay, it means less money for new ventures, said Randy Soggs, the city’s Urban and Economic Development commissioner.

Incidence of failure

Soggs cited statistics that show a high incidence of start-up business failure.

“This is money that we, as a community, have decided we’re going to put out to people who can’t get it from the bank,” Soggs said. “There is going to be, by definition, a higher instance of deals not working.”

Among the O-D’s findings:

* The city has initiated legal action against 10 of the companies that are delinquent on their loans. Three have begun to make payments.

* Twelve of the delinquent loans are 10 or more payments past due.

* Seven of the past-due loans were given out since Mayor David Roefaro took office in 2008, 18 were awarded during former Mayor Timothy Julian’s tenure from 2000 to 2007, and one was given out in 1995 when former Mayor Edward Hanna was in office.

A U.S. Housing and Urban Development spokesman noted that the loans are targeted to primarily benefit low- and moderate-income people and neighborhoods.

“We are supportive of communities that wish to use the (federal money) in creating a small business loan program, and are prepared to assist them to keep the program healthy and strong,” said Adam Glantz, the spokesman, via email. “The statistics you cite may not be atypical, but the goal of attracting a new business to revitalize the community is the very aim of the…program.”

Seeking change

The trend is something the city is seeking to change, sending letters recently to the people who were past due in an attempt to get them to pay. The city Corporation Counsel has also worked for years with loan delinquents to try and get them back on a payment schedule.

The early returns have been positive — four business owners have responded to set up payment schedules.

Those include Zaim Dedic, who was given $10,000 in April 2008 to renovate the O2 lounge at 222 Bleecker St.

The money helped Dedic turn the establishment into a successful downtown bar. But city records show he’s four payments behind. He sent the city a payment plan that would bring him current by April.

“I took a risk that I’m pretty sure nobody in the city would take, took my own money and invested it into a lounge and bar,” Dedic said. “But at the same time, running a bar is difficult. You’ve got to pay everything on time.”

It also includes David Todd Productions, run by Bill Keeler, which received $25,000 in May 2004 but later became defunct. Keeler now runs a production company, advertising agency, the Utica Daily News website and hosts an Internet talk show.

But because the loan was to a corporation, Keeler said he’s under no obligation to pay. But he plans to do so anyway, sending the city $200 per month and possibly more until he’s paid up.

“I don’t want to be that person who doesn’t pay, but at the same time Keeler Productions can only take on so much,” Keeler said. “So, what I have proposed is if we could reduce the payments, then I will take care of it personally.”

Developing a department

The city’s Urban and Economic Development department has been through considerable turmoil, from the GroWest Inc. scandal to turnover at the top position when Soggs took over in late December.

The report by J.K. Hage III’s law firm, which was hired by the city in April in response to concerns over GroWest, concluded the city’s “economic development and neighborhood revitalization initiatives lack overarching focus, a strategic plan, structure, control and oversight.”

Partly in response to that report, Soggs has decided to add several staff members. He also plans to try to start partnering with local banks on loan programs to utilize their underwriting expertise.

“We have a fiduciary obligation to try and collect every dollar we can,” he said. “It’s never our objective to lose a dollar, but we have to recognize we’re making high-risk loans.”

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